Group nixes plans to audit The Woodlands Co.

Association was worried village services would suffer after sale

CHARLIE BIER, Copyright 2004 Houston Chronicle

Published
5:30 am CDT, Thursday, July 29, 2004

Despite concerns about a possible power shift, The Woodlands Community Association has decided not to ask for an audit of the Woodlands Operating Co., a possibility that sprung from a sale of a majority share of the community last November.

WCA officials were concerned that the sale by Fort Worth-based Crescent Real Estate Equities to The Rouse Co., a Columbia, Md.-based real estate company, might lead to a structural change in the mutual benefits agreement shared by WCA and the WOC.

There also was a concern that management standards for the community might be affected.

Working partnership

The mutual benefits agreement, first crafted in 1993 and revised in 1997, is a contractual partnership agreement between The Woodlands Operating Co. and the community associations, including the WCA, The Woodlands Association and

WCA President Bruce Tough said the sale, which went into effect in January, could trigger a change in the agreement that would shift the balance of power between the developer and the WCA.

"Then, we would have the option to terminate the agreement with the operating company as a partner in the MBA (mutual benefits agreement). The WCA would operate on its own in connection with a number of joint working relationships," Tough said.

The WCA is the homeowners association, which oversees the villages of Grogan's Mill, Panther Creek, Cochran's Crossing and portions of Indian Springs east of Falconwing Drive.

Changing management

Before any termination, the WCA would first have to prove at least two things: 30 percent ownership had not been maintained as a result of the sale and The Woodlands Operating Co. had relinquished management control.

"There has to be a sale and management change to occur, then we also have to decide that the development standards will not be maintained to the same level they were in 1997," Tough said.

In November, Crescent Real Estate Equities sold a 52.5 percent economic interest in The Woodlands to The Rouse Co.

Morgan Stanley Real Estate, which oversees management of developer, The Woodlands Operating Co., owns the other 47.5 percent economic interest in The Woodlands.

Tough, who initially questioned what effect the sale might have on Woodlands governance when it was first announced in late 2003, said the WCA drafted and sent a letter to The Woodlands Operating Co., requesting a look at the operating company's management structure.

Maintaining standards

In a return letter to the WCA sent in mid-June, Woodlands Operating Co. President
Thomas J. D'Alesandro
wrote the sale, in effect, had changed only Crescent's stake in the community, not Morgan Stanley's, and the operating company's management control had not been diminished.

Susan Vreeland-Wendt, the operating company's director of marketing, said by e-mail when asked for comment that D'Alesandro's response in his return letter to the WCA "speaks for itself."

The WCA board decided to honor the operating company's response and board members subsequently decided not to use legal means to request an audit.

Subjective issues

Tough said such a complex and subjective determination as to whether the operating company is maintaining management standards can't be easily made.

"I think that short of having a definite problem presented or that needs to be solved, I feel like the board has deferred action on this matter because there's not really a defined problem or concern and our working relationship with the operating company is good," he said.

"Without review of the legal sale document, on which there's a proprietary claim which restricts us, we're taking the operating company at their face value that there hasn't been a management change."